Can a New York resident who won a slot machine jackpot at an Atlantic City casino and paid New Jersey tax on it claim a New York resident tax credit for that New Jersey tax?

Plain-English summary

Simone Zaino, a New York State resident, won a jackpot on a slot machine at the Trump Taj Mahal Casino in Atlantic City, New Jersey on June 18, 2001. Because New Jersey taxes gambling winnings won by nonresidents within the state, Petitioner filed a New Jersey Non-Resident Gross Income Tax Return and paid New Jersey tax on the winnings. Petitioner then asked whether New York would allow a resident tax credit under Tax Law § 620(a) for the New Jersey tax paid, since that credit exists to prevent New York residents from being taxed twice on the same income.

The Department explained that the resident credit is not automatic just because another state taxed the income. Under the standard set out in Matter of Mallinckrodt, a taxpayer must show three things: another state imposed a tax on the income, the income was actually derived from that other state, and the income is also subject to New York tax. The Department applies the same "derived from or connected with" sourcing test used for nonresidents' New York-source income under Tax Law § 631(b) to determine whether income is "derived from" the other state for credit purposes. Under that test, income is derived from another state if it comes from real or tangible property there, from a business, trade, or profession carried on there, or from personal services performed there.

Applying that test, the Department found that Petitioner's slot machine winnings did not qualify. Nothing in the facts suggested that gambling was Petitioner's business or profession in New Jersey, or that the winnings were compensation for personal services performed there - it was simply a one-time casino jackpot. Because the winnings were not "derived from sources within" New Jersey in the relevant sense, the second Mallinckrodt element failed, and the Department denied the resident credit even though New Jersey had, in fact, taxed the same winnings.

The practical result is that Petitioner's slot machine winnings were taxed twice - once by New Jersey as source income under its wagering-transaction rules, and once by New York as income of a New York resident - without any offsetting credit, because the two states used different tests to decide whose income it was.

What this means for you

New York residents who gamble in other states

If you're a New York resident and win money gambling in another state (for example, at an Atlantic City casino), don't assume you can offset New York tax on those winnings with a resident credit for tax the other state charged you. The credit under Tax Law § 620(a) only applies if the winnings are treated as "derived from" that other state under New York's sourcing rules, which generally requires a business, trade, profession, or personal-services connection to that state - not just physical presence when you happened to win.

Casual gamblers versus professional gamblers

The outcome might differ for someone who gambles as a trade or business in the other state, since that connection can support treating winnings as derived from that state's sources. A casual, one-time jackpot like Petitioner's slot machine win does not create that connection, so the credit is unavailable even though the other state (here, New Jersey) taxed the winnings as its own source income.

Common questions

Q: Why didn't New York give credit for the tax New Jersey already collected on the same winnings?
A: Because Tax Law § 620(a) only credits tax on income "derived from" the other state, and the Department concluded casual slot machine winnings are not derived from New Jersey sources absent a business, profession, or personal-services connection there - even though New Jersey itself taxed the winnings under its own wagering-income rules.

Q: Does this mean the winnings were taxed twice?
A: Yes, on these facts. New Jersey taxed the winnings as New Jersey-source wagering income under its Non-Resident Gross Income Tax, and New York separately taxed the same winnings as income of a New York resident, with no resident credit to offset the New Jersey tax.

Q: What test does New York use to decide if income is "derived from" another state for credit purposes?
A: The same sourcing test used in Tax Law § 631(b) for nonresidents' New York-source income: income from real or tangible property in the state, from a business, trade, or profession carried on there, or from personal services performed there.

Q: Would the result change if the person gambled professionally in New Jersey?
A: The opinion notes the credit turns on whether gambling was the petitioner's business or profession undertaken in New Jersey; since the facts here involved a one-time casino jackpot rather than a gambling trade or business, that connection was absent.

Citations and references

• Tax Law § 620(a) - resident credit against New York tax for income tax paid to another state on income derived from and taxed by that state
• Tax Law § 631(a) - New York source income of a nonresident individual
• Tax Law § 631(b) - items of income derived from or connected with New York sources (real/tangible property, business carried on in-state, personal services performed in-state)
• 20 NYCRR 120.1(a) - resident credit allowed for income tax imposed by another jurisdiction on income derived from that jurisdiction
• 20 NYCRR 120.4(c) - defines "income tax imposed by the other jurisdiction" for credit purposes
• 20 NYCRR 120.4(d) - construes "income derived from sources within" another state to accord with New York's own source-income rules
• N.J. Stat. § 54A:5-1(g) - New Jersey gross income includes gambling winnings
• N.J. Stat. § 54A:5-8(a)(5) - New Jersey source income for nonresidents includes wagering transactions in New Jersey, including casino and slot machine winnings
• Matter of Jane A. Mallinckrodt, Tax Appeals Tribunal, Nov. 12, 1992, TSB-D-92(23)I - three-element test for the resident credit

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a02_4i.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

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TSB-A-02(4)I
Income Tax
July 24, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I011005A

On October 5, 2001, a Petition for Advisory Opinion was received from Simone Zaino, 2065
Valentine Road, Westbury, New York 11590.
The issue raised by Petitioner, Simone Zaino, is whether a New York State resident
individual may claim a resident tax credit, pursuant to section 620 of the Tax Law, for income taxes
paid to another state on slot machine winnings from a casino.
Petitioner submits the following facts as the basis for this Advisory Opinion.
On June 18, 2001, Petitioner, an individual domiciled in New York State, won a jackpot on
a slot machine at the Trump Taj Majal Casino in Atlantic City, New Jersey. Pursuant to New Jersey
Tax Law, Petitioner filed a New Jersey Non-Resident Gross Income Tax Return and paid tax on the
slot machine winnings.
Law and Regulations
Section 54A:2-1.1 of the New Jersey Gross Income Tax Law (“NJ Tax Law”) provides that
the tax due each taxable year from a nonresident taxpayer shall be equal to the tax computed as if
the nonresident taxpayer were a resident, multiplied by a fraction. The numerator of the fraction is
the taxpayer’s income from sources within New Jersey determined in accordance with the provisions
of sections 54A:5-7 and 54A:5-8 of the NJ Tax Law and the denominator of the fraction is the
taxpayer’s gross income for the taxable year as if the taxpayer were a resident of New Jersey.
Section 54A:5-1(g) of the NJ Tax Law provides that New Jersey gross income includes gambling
winnings. Section 54A:5-8(a)(5) of the NJ Tax Law provides that income from sources within
New Jersey for nonresidents includes items of income attributable to wagering transactions in
New Jersey other than from the New Jersey State Lottery. On July 2, 1993, the New Jersey Division
of Taxation issued Technical Bulletin, TB-20-Gambling Winnings of Nonresidents. The Technical
Bulletin provides that income received by a nonresident from wagering transactions in New Jersey
includes winnings from casino betting and wagering and slot machines.
Section 620(a) of the Tax Law provides, in part:
General. A resident shall be allowed a credit against the tax otherwise due
under this article for any income tax imposed for the taxable year by another state
of the United States ... upon income both derived therefrom and subject to tax under
this article. The term "income tax imposed" in the previous sentence shall not
include the portion of such tax (determined in the manner provided for in section

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Income Tax
July 24, 2002

six hundred twenty-A) which is imposed upon the ordinary income portion (or part
thereof) of a lump sum distribution which is subject to the separate tax imposed by
section six hundred one-C.
Section 120.1(a) of the New York State Personal Income Tax Regulations (“Income Tax
Regulations”) provides, in part:
General. (1) Where a resident individual receives income derived from
sources within another state of the United States ... [the individual] is entitled to a
credit against [the individual’s] ordinary tax ... for any income tax imposed on such
income by the other jurisdiction ....
(2) The credit against ordinary tax is allowable only for that portion of the
income tax imposed by another state of the United States ... which is applicable to
the income derived from sources within such other taxing jurisdiction....
Section 120.4(c) of the Income Tax Regulations provides, in part:
The "income tax imposed by the other jurisdiction" means the total income
tax payable thereto for the taxable year, exclusive of the portion of such tax ... which
is imposed on the ordinary income portion (or part thereof) of a lump sum
distribution, and any interest or penalties. No resident credit is allowable if no tax is
actually due to the other jurisdiction ....
Section 120.4(d) of the Income Tax Regulations provides, in part:
"Income derived from sources within" another state ... is construed so as to
accord with the definition of the term "derived from or connected with New York
State sources” ... Thus, the resident credit against ordinary tax is allowable for
income tax imposed by another jurisdiction upon compensation for personal services
performed in the other jurisdiction, income from a business, trade or profession
carried on in the other jurisdiction, and income from real or tangible personal
property situated in the other jurisdiction. On the other hand, the resident credit is
not allowed for tax imposed by another jurisdiction upon income from intangibles,
except where such income is from property employed in a business, trade or
profession carried on in the other jurisdiction. Thus, for example, no resident credit
is allowable for an income tax of another jurisdiction on dividend income not derived
from property employed in a business, trade or profession carried on in such
jurisdiction.
Section 631(a) of the Tax Law provides, in part:

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Income Tax
July 24, 2002

The New York source income of a nonresident individual shall be the sum
of the following: (1) The net amount of items of income, gain, loss and deduction
entering into [the individual's] federal adjusted gross income, as defined in the laws
of the United States for the taxable year, derived from or connected with New York
sources ....
Section 631(b) of the Tax Law provides, in part:
Income and deductions from New York sources.
(1) Items of income, gain, loss and deduction derived from or connected with
New York sources shall be those items attributable to:
(A) the ownership of any interest in real or tangible personal property in this
state; or
(B) a business, trade, profession or occupation carried on in this state; or
(C) in the case of a shareholder of an S corporation where the election
provided for in subsection (a) of section six hundred sixty of this article is in effect,
the ownership of shares issued by such corporation, to the extent determined under
section six hundred thirty-two of this article; or
(D) winnings from a wager placed in a lottery conducted by the division of
the lottery, if the proceeds from such wager exceed five thousand dollars.
(2) Income from intangible personal property, including annuities, dividends,
interest, and gains from the disposition of intangible personal property, shall
constitute income derived from New York sources only to the extent that such
income is from property employed in a business, trade, profession, or occupation
carried on in this state or from winnings from a wager placed in a lottery conducted
by the division of the lottery, if the proceeds from such wager exceed five thousand
dollars.
Opinion
In the Matter of Jane A. Mallinckrodt, Dec Tax App Trib, November 12, 1992,
TSB-D-92(23)I, the Tax Appeals Tribunal explained that in order to receive a credit for tax paid to
another state, a taxpayer must prove three separate elements: 1) that another state of the United
States imposed a tax on the subject income; 2) that the income was derived from another state of the
United States; and 3) the income was subject to tax under Article 22 of the Tax Law.

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Income Tax
July 24, 2002

In this case, the question arises whether the gambling winnings received by Petitioner were
derived from New Jersey within the meaning of section 620(a) of the Tax Law and section 120.4(d)
of the Income Tax Regulations. Income derived from New Jersey sources is construed to accord with
the definition of the term “derived from or connected with New York State sources,” as set forth
in section 631(b) of the Tax Law. Assuming that gambling was not Petitioner’s business or
profession undertaken within New Jersey, nor compensation for personal services performed by
Petitioner in New Jersey, the gambling winnings are not considered “derived from sources within
another state” as required in Section 620(a) of the Tax Law.
Accordingly, Petitioner is not entitled to a resident tax credit under section 620 of the Tax
Law for income taxes paid to the state of New Jersey on the slot machine winnings.

DATED: July 24, 2002

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.